The Official Journal published last Thursday evening the Government Emergency Ordinance (OUG) amending the Tax Code. The amended Code will come into force on 1 January 2018.
The Emergency Ordinance amending the Tax Code was adopted last Wednesday during a Government meeting that took place while several hundred persons were protesting the measures about to be introduced, mainly the transfer of social security contributions from the employer to the employee.
The ordinance stipulates the lowering of the number of social security contributions from nine to three, changes to the corporate tax, to the tax levied on SMEs in particular, and the lowering of the income tax from 16 to 10 percent.
In the field of mandatory social contributions, the amendments adopted by the Government last Wednesday aim to lower the cumulated share of mandatory social security contributions by an overall 2 percentage points, from 39.25 to 37.25 percent, and to lower the number of social security contributions from nine to three, the three kept in force being: the social security contribution (CAS) paid for the employee; the health insurance contribution (CASS) paid for the employee; the labour insurance contribution paid by the employer.
Secondly, the mandatory social contributions owed by the employer will be transferred to the employee in the case of the salary income and incomes assimilated to salaries. “CAS and CASS are owed by natural persons, namely by employees, including in the case of full-time or part-time labour contracts for which the owed CAS and CASS cannot be lower than the level of social contributions owed for the gross minimum salary in force in the month for which they are owed, in line with the number of workdays in which the contract was active,” the Government points out. Moreover, a supplementary CAS level (of 4 and 8 percent respectively) is introduced for special labour conditions or for other labour conditions as defined by the law.
The health insurance contribution (CASS) stands at 10 percent, being owed by natural persons who are employees or who have the obligation to pay the health insurance contribution in line with the Tax Code.
“The legislative act also stipulates the amending of the way the CAS and CASS are established for physical persons who obtain incomes from independent activities, for instance: consultants, accounting experts, medical doctors, certified natural persons, lawyers (only CASS), notaries public (only CASS) or other categories of incomes. More exactly, these no longer owe social security contributions on their incomes, but the basis for calculus will be the selected income which, in the case of the CAS, must be at least equal to the gross minimum salary, and the basis of calculus of the CASS will be the gross minimum salary,” the source points out.
Natural persons ensured in their own social security systems will be exempted from the payment of the CAS only for incomes obtained from activities for which, according to the law, there is the obligation to have insurances in such systems (ex: lawyers, notaries public, monastic personnel), including for incomes of a salary nature obtained in those fields (ex: salaried lawyers etc.). At present, the exception applies for any salary income and incomes assimilated to salaries, including for natural persons who are enrolled as pensioners in their own social insurance system, something that generates inequalities compared to persons who are enrolled in the public pension system.
“Pensioners, the unemployed, persons on paternal or maternal leave, persons who collect welfare and other categories of persons under the protection or in the custody of the state will be insured within the public health system, without paying the contribution, provided they do not obtain incomes for which they would owe the payment of health insurance,” the Government informs.
As a novelty, the “labour insurance contribution” of 2.25 percent is introduced, paid by employers, which will be used to fuel the guarantee fund for the payment of salary arrears and to ensure the payment of services from the field of social security contributions from which employees benefit, namely unemployment benefits, indemnities received for medical leave, or expenditures for labour accidents and occupational diseases.
Moreover, the income tax will drop from 16 to 10 percent, except for dividends, on which a 5 percent tax will continue to be levied.
The OUG changes the way micro-enterprises are taxed, so that a 1 percent turnover tax will be levied on SMEs which register revenues ranging from EUR 500,000 to EUR 1 million, SMEs which currently pay a 16 percent profit tax. “At the same time, included in this system are also the legal persons who did not fall under the incidence of this tax (legal persons from the fields of insurance market, capital market, banking system, gambling and the extraction of natural resources). The measure is beneficial for the business environment, considering the lowering of the fiscal burden and the reduction of the costs with calculating and managing the tax,” the Government points out.
The Ordinance also transposes into national legislation the provisions of Directive 2016/1164/EU on combating the remittance of MNCs’ profits by: limiting the deductibility of interest; introducing exit taxes – preventing the erosion of the taxable basis in case of a transfer of assets abroad; consolidating the anti-abuse rule, which will allow Romanian authorities to deny to taxpayers fiscal benefits obtained through abusive arrangements; introducing the controlled foreign company (CFC) norms whose purpose is to prevent tax avoidance via the channelling of branch revenues to tax havens.
Likewise, the Government has decided to hike the gross monthly income on whose basis the personal deduction is offered, as follows:
- From RON 1,500 (at present) to RON 1,950 – the limit up to which the deductions are offered in fixed sum, in relation to the number of persons in care;
- From RON 3,000 (at present) to RON 3,600 – the maximum limit up to which the deductions are offered degressively.
PNL to protest against Tax Code amendments. Timetable of protests to be discussed on Monday during the party’s Executive Bureau meeting
National Liberal Party (PNL) President Ludovic Orban pointed out on Friday that after the ordinance amending the Tax Code is published in the Official Journal the party will ask the Ombudsman to challenge the government emergency ordinance at the Constitutional Court of Romania (CCR), adding that Victor Ciorbea has the obligation to defend the rights of Romanian citizens.
“I see the OUG was not that urgent. Because it hasn’t been published in the Official Journal. For this reason, we cannot take the first step we announced, namely notifying the Ombudsman to challenge it at the CCR. We are waiting for the ordinance to be published in the Official Journal, after which, the day after, we will challenge it at the Ombudsman, in order to ask it to notify the CCR. I’m convinced we won’t be the only ones notifying the Ombudsman, there will also be unions and employers’ associations,” Orban stated on Friday before the emergency ordinance was published in the Official Journal.
At the same time, the Liberal leader also stated that the party will prepare a committee tasked with organising the protests against the ordinance amending the Fiscal Code, adding that such a protest may take place on the day of the censure motion too.
“We will set up a committee to organise all protest actions we will stage against this fiscal chaos,” Orban said.
The PNL leader pointed out he will discuss a timetable of protests on Monday, during the party’s Executive Bureau meeting.
Asked what the timetable entails, Orban said: “It’s hard for me to tell you now. We’ll surely organise marches, protest meetings, that’s possible during the day of the motion too, we are yet to decide where. This is a debate. We’ve already discussed; I’ll propose an organising committee responsible with coordinating all these protest actions, but also [coordinating them] with other protest actions that will be organised by society through organised groups, regardless of whether they are employers’ associations, unions or other professional associations or other civil society organisations.”
At the same time, the Liberal leader claimed that PNL will organise its own protests but that there may be coordination with the unions.
“We’ll organise our own protests, but there may be some coordination, to show the strong opposition that exists in society against this fiscal improvisation that has no point, which gravely affects very many categories,” Ludovic Orban pointed out.
Asked whether he has thought about a date for a protest march, the PNL President answered: “We’ll present the timetable when we adopt it.”
Basescu on fiscal revolution: We’re witnessing a risky and illusory spectacle in which they hope propaganda will cover up everything they did not do. Romania is being wagered in a game of chance
On Saturday, Popular Movement Party (PMP) leader Traian Basescu called the fiscal revolution “a risky and illusory spectacle” in which the PSD and the Government hopes that propaganda will cover up everything they did not do, as well as the elections campaign lies, something that will affect the population. The ex-President said that “Romania is being wagered in a game of chance.”
“It’s indeed a revolution, undeniably, but a revolution for which Romania is being wagered in a game of chance,” the ex-President stated, deeming that “there is no justification for fundamentally changing the Fiscal Code overnight, against the backdrop in which Romania is registering economic growth, albeit, it’s true, stimulated by excessive consumption.”
He criticised the lowering of the income tax from 16 to 10 percent at a time of economic growth.
“Of course, it’s good for citizens, but this will accelerate consumption and implicitly inflation. (…) Purchasing power dropped despite the whole hiking of pensions. Since the fiscal policy was poor, they gave me [more money] on June 1st and by the end of November the whole growth was eroded by inflation and by energy price hikes,” Traian Basescu argued, adding that if one also considers the hike in food prices, there is nothing left of the hike.
“But it was useful for them propagandistically: we hiked your salaries, we hiked your pensions. In fact, purchasing power has dropped,” the former Head of State said.
He labels as “a sleight-of-hand” the fact that the announced January 1st salary hike is generated by adding to the employee’s gross salary the social security contributions previously owed by the employer.
“We are witnessing a risky and, apart from that, an illusory spectacle in which they hope propaganda will cover up everything they did not do; all the lies they said during the elections campaign will affect the population,” Traian Basescu stated in Ploiesti, where he was present in view of the elections within PMP Prahova.
Coalition for Development of Romania: PM Tudose’s message that the business sector is the one causing the lack of budget funds – profoundly false and deleterious for society
The Coalition for the Development of Romania (CDR) states that Premier Mihai Tudose’s public message according to which the business environment is the one that causing the lack of budget funds for schools, infrastructure or medical services is profoundly false and deleterious for Romanian society.
The Coalition, which claims it represents more than 2,000 companies hiring over 600,000 people and generating an annual turnover of more than EUR 50 billion, states that it will enforce and observe Romanian laws.
“We assure you we care about our employees and about Romania. We will see in the future whether our concerns will materialise or not. For everyone’s well-being, we honestly hope that that will not be the case!” the CDR points out in a press release, but wonders what will happen if it is not wrong in its predictions about the legislative amendments introduced by the Government via emergency ordinance.
The Coalition states that even though there are persons and companies that dodge taxes in the private sector, just as there are in the public sector, “in its overall majority, the business environment is FAIR and it is the one that generates welfare in Romania.”
“Foreign-capital companies (many of them multinationals), banks and hundreds of thousands of Romanian entrepreneurs respect their employees and the country’s laws. They are the ones who ensure the funds with which the professors, medical doctors, magistrates, and judges are paid, with which schools and hospitals are built. The money that prop-up public administration. The money with which Romania develops. All these companies and all these entrepreneurs must be RESPECTED,” the CDR points out, asking the Government to make public any clear evidence it has on local- or foreign-capital companies that do not observe the law and to notify the relevant institutions.
The Coalition for the Development of Romania invites Premier Mihai Tudose at a press conference on Wednesday, to discuss who will be held accountable for the opportunities lost and for placing Romania in another investment league because of the massive changes brought to the Fiscal Code starting in 2018 and because they were announced only 7 weeks before they are set to come into force.
Dragnea on the Tax Code: We have only one problem, but it will be solved by the Government: the situation of the employees in the IT field
The leader of the Social Democrat Party (PSD) Liviu Dragnea stated on Sunday, related to the amendments brought to the Tax Code, that there is only one problem, but the Government will solve it, namely the situation of the employees in the IT field.
“We have only one problem that will be solved by the Government: those who work in the IT field. However, there are several options which my colleagues in the Government will propose” Liviu Dragnea said.
He mentioned that the income tax of those who work in the IT was 0, and it will continue to be like this, but “their salaries will not be diminished anyway, the question is if the company will spend more”.
As for the accusations regarding the unconstitutionality of the Tax Code, he said that there was a extensive work on the draft amendment, made together with specialists.
“I don’t see why it would be unconstitutional. Company after company announces that salaries will not be diminished” PSD Chairman argued.
The PSD Chairman on the protesters: I think they don’t have the whole information
Most likely, protesters don’t have the whole information on the amendments to the Tax Code, believes the Speaker of the Deputies’ Chamber and the PSD Chairman, Liviu Dragnea.
Asked what is his message to those who announced they’ll protest on Sunday evening, Dragnea said: “I heard about that. As for the amendments to the Tax Code, we follow our government program that was supported by millions of Romanians. This is also a package of measures that helps the state budget revenue to increase, also providing the stability of the pension fund, simplifying the procedures for the companies and even increasing the net salaries of the employees in some cases, and the companies will not pay more. I believe they don’t have the whole information”.
The PSD leader mentioned that there was no hesitation related to the fiscal measures, on which he worked with PM Mihai Tudose all this time.